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Proposed FINRA Rule Changes

FINRA currently has two proposed rule changes pending approval by the Securities and Exchange Commission (“SEC”). The SEC has until September 18, 2013 to act on the proposed rule changes.

SR-FINRA-2013-023 – Panel Selection

FINRA has proposed changes to Rule 12403 that governs the selection of arbitrators in customer cases requiring three arbitrators. A customer may select either an all public panel (3 public) or a majority public panel (2 public, 1 non-public). Currently, if the customer wants an all public panel, the customer must advise FINRA in writing within 35 days after the Statement of Claim is served, or it will default to a majority public panel.

The proposed rule would eliminate the need for the customer to make a written selection in advance of the panel appointment. The revised rule would allow for any party to select an all public panel by striking all of the arbitrators on the non-public list.

SR-FINRA-2013-024 – Discovery Guide

FINRA has proposed changes to its Discovery Guide used in customer disputes. FINRA Rule 12506 requires that the parties to a customer dispute produce the documents identified in the Discovery Guide within 60 days after the Answer is due. The proposed changes to the Discovery Guide generally relate to electronic discovery and cases that involve a specific investment product, rather than an investment strategy.

The high points of the proposed revisions are:

  • The parties must produce electronic files in a “reasonably usable format.” Arbitrators will consider whether the chosen form of production differs from the form in which the document is ordinarily maintained. If it is, why did the producing party choose that format for production? Is the other party’s ability to use the document diminished by the document’s change in format (searchability, metadata, maneuverability);
  • Arbitrators may order a different format for production;
  • Affirmations, in the event there are no responsive documents, need to include the sources searched; and
  • The revised Discovery Guide enumerates some of the ways in which a “product case” differs from a traditional customer case, and some of the categories of documents that may be requested in product cases.

A copy of the proposed Discovery Guide changes can be found here.

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